With a global inflation crisis looming and fears of it pulling the world into a recession, it has become imperative for brands and retailers alike to consider taking deliberate measures to offset, to a permissible and reasonable extent, the effect of this event on their top and bottom lines.
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While the impact of the recession is likely to be stronger in the US and Europe, it is predicted that the Middle East, especially KSA and UAE, will fare better than the rest of the world. As per local economic reports, the UAE economy may experience an economic slowdown in 2023 because of global recession and geopolitical tension but it will remain on track to post a steady gross domestic product (GDP) of around 5 per cent compared to seven point 6 per cent projected by the central bank in 2022.
While the UAE will be safeguarded to an extent, steps will still need to be taken to make brands and retailers resilient and thereby minimise the impact of the upcoming months.
We know that acquiring a new customer is more expensive than retaining existing ones. So for brands, the focus should be on retaining existing shoppers as well as recruiting new ones but at a minimal cost.
While luxury tends to become a discretionary spend in a downturn, FMCG will also be impacted negatively, albeit to a lesser extent. Economists have established that recessions are reliably associated with increased spending on two types of products: traditional inferior goods (e.g., spending more on tuna rather than salmon because of budgetary constraints) and morale boosters (e.g., going to watch a film in a theatre rather than a show on television at home).
Price conscious shoppers will likely look at switching to private label brands or products of lesser value (and lower acceptable quality). Higher net worth individuals are more likely to stick with their existing brands so long as they are perceived to be cognizant of their needs and wants. For the former group, brands should consider introducing smaller SKUs or pack sizes or offering more ‘refill’ options depending on the category in question.
In some cases, it might be prudent to even consider introducing new lines of ‘value products’ in the form of sub brands or brand extensions to reach this segment. For the latter, brands should make concerted efforts to continue to maintain or even increase their share of voice through targeted marketing plans.
While the tendency is to reduce marketing and advertising spends, the objective should be to repurpose the corpus to reach loyal shoppers more effectively and efficiently as well as rewarding them for their continued patronage, with an effort to also reach new, untapped ones. Given that competition is likely to cut their marketing budgets, brands that maintain or even increase theirs in a recession, will emerge stronger once the economy picks up.
What about the retailers?
Retailers have an additional advantage of analyzing footfall across categories as well as spending patterns during any given time of the year. By simply understanding buying behaviour and shopper sentiment, retailers can take immediate steps around rationalisation of their product assortments.
Instead of adding more perceivably ‘value’ products to answer the shopper demand, it might be better to offer more relevant ones that are a mix of high margin and high quality. This will not only result in easier navigation and product discovery by shoppers but will also streamline procurement and stocking activities and costs.
Apart from the above, retailers can engage with and delight their shoppers with creative solutions to add value to their shopping missions. For example, they can give useful tips on how to make grocery products last longer, ideas to reduce food waste, offer transparency around ‘about to expire’ products and display them at a reduced cost, demonstrating environmental consciousness and driving retailer affinity and loyalty.
While markets are reeling from the events from recent years, shoppers are re-assessing their priorities with relatively conservative budgets. For businesses, this is the time to not make any knee-jerk reactions, and instead evaluate the best strategy to retain and even grow the existing shopper base.
Recessions eventually come to an end, while shoppers can stay with brands and retailers for the long term. Companies that plan well for a downturn, will do well during the upswing.
